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What's In Store For 2019? The Pros Debate

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What's In Store For 2019? The Pros Debate

Experts are more divided than ever as to what 2019 will bring: a rebound in stocks toward all-time highs or more pain ahead for bulls.

A Theme Of Uncertainty

Investors looking at Wednesday's record-setting trading session shouldn't "read too much into it," as nothing has changed from last week when bears were in control, Geoffrey Yu, head of UBS Wealth Management in the U.K., told CNBC in an interview.

The volatility and uncertainty will not only continue into 2019, but investors may become increasingly worrisome of new developments. he said.

For example, if the Federal Reserve turns more dovish, investors will question whether the Federal Reserve sees "cracks in the market" no one else does or if a change in policy is politically motivated, Yu said.

The Fed Needs To 'Back Off'

The Federal Reserve's actions will be key in 2019. Binay Chandgothia of Principal Global Investors told CNBC the American central bank will need to "back off" at some point in the coming year.

The Federal Reserve needs to avoid signalling it will end "quantitative withdrawal of liquidity in the market," Chandgothia said.

There are signs liquidity is getting tight, including London Interbank Offered Rate (LIBOR) and Overnight Indexed Swap (OIS) spreads that widened not because of general mistrust in the banking system, but because demand for excess reserves is "pretty strong for banks to meet their liquidity requirements," he said.

"Unless the Fed backs off, the markets could be very choppy and very volatile, but our expectation is that they will back off by the second quarter of next year," Chandgothia said.

Related Link: Bank of America's Favorite Stock Ideas For 2019

Market At 'Crisis' Levels

Stock multiples as a whole moved lower from 16.5 times earnings to below 14 times, Oliver Pursche of Bruderman Brothers told CNBC.

The downward multiple revision has brought stocks to crisis-level multiples, but "we are nowhere near a crisis" despite some concerns from Washington, the Federal Reserve, international concerns and the trade war, Pursche said.

The cheap stock multiple creates a scenario where 2019 could bring a "great rally" where the S&P 500 index moves higher by as much as 25 percent, he said. Fourth-quarter earnings will be on deck in the coming weeks and could prove to be a "pretty good indicator" of a rally ahead, Pursche said.

Selloff A 'Huge Overreaction'

The bear market amounts to a "huge overreaction" for no reason, Butcher Joseph Asset Management's Kenny Polcari said during the same CNBC segment. While experts are quick to point out that the market reacted to Federal Reserve rate hikes, Polcari doesn't agree. The Federal Reserve merely raised rates by one quarter of one basis point to 2.25 percent, which is nowhere near any sort of "normal" level, he said.

Related Link: Experts Break Down Fed Commentary, Markets Disagree With Powell

How The Fed Can Help

Notable bull Edward Yardeni of Yardeni Research told CNBC that 2019 is shaping up to be a strong year for stocks. Investors showed a willingness to "come back to their senses" during Wednesday's historic session, helped by a view the economy continues to perform well with no signs of a coming recession, he said.

The Federal Reserve can play a role in supporting markets if Fed officials deliver several dovish speeches, Yardeni said. He's of the view that Fed Chairman Jerome Powell needs to improve his communication skills after saying that quantitative tightening is on pilot mode.

"The market just doesn't like to hear that kind of cockiness — that kind of certitude," he said. "I think we need [Powell] to tone it down."

Posted-In: CNBC Geoffrey YuAnalyst Color Futures Federal Reserve Markets Analyst Ratings Media Best of Benzinga

 

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